Resource scarcity theory of entrepreneurship
What is the resource scarcity theory of entrepreneurship? New ventures need to grow at a fast pace to keep up with incumbent firms. Oxenfeld and Kelly (1969) propose resource scarcity theory to explain which some new ventures choose franchising instead of chaining as a means of growth. A core assumption of the theory is that new ventures are founded below minimum efficient scale , such that there is a negative relationship between growth rate and failure of new ventures (Audretsch, 1995). Franchising is a quick way to expand a new venture with little upfront capital because the franchisees provide their own capital for their franchises. Since new ventures are often not able to access mainstream financial markets (e.g., for loans, bonds, and equity), franchising is an important alternative. Startups may also be less able to retain earnings to expand, given their commitments to initial investors who may want a quick return (Combs and Ketchen, 1999). Shane (1996) argues th...
